Businesses weigh fines over paying insurance

Brokers say owners awaiting more data on health exchanges

With health reform mandates looming, insurance brokers report that many local businesses are considering the idea of paying government fines rather than beefing up coverage for employees.

For now, brokers say, most are waiting to get more information on exactly how new health exchanges will work and how much the health plans in those exchanges will cost, before making a firm decision on how to proceed with coverage in 2014.

That’s when the Affordable Care Act, the sweeping health overhaul passed in 2010, requires businesses with 50 or more full-time equivalent employees to either provide coverage or pay a fine of $2,000 per worker.

Larry Levitt, vice president of special projects at the nonpartisan Kaiser Family Foundation, said the intent of the mandate was to preserve private health plans while also cracking down on companies that could insure their employees but don’t.

“The idea here is to try and use the stick of penalties to keep employers in the game in terms of offering health benefits,” Levitt said. “Most mid-size and large companies offer health insurance already, but there are some that don’t, and there was a sense that employers that don’t offer insurance would essentially be freeloading.”

Bill Hammett, owner of Hammett Health Insurance Services in La Mesa, said many of the business owners he works with are quick to note that the penalty, in many cases, is less than they pay per year to subsidize health coverage.

“If a company is paying, on average, $3,600 to $4,500 a year per employee for benefits, and the penalty’s only $2,000, they’re looking for reasons why they should not just pay the penalty,” Hammett said.

The mandate for employers to cover their employees comes alongside another mandate for individuals and families to purchase coverage on newly created insurance exchanges.

The creation of exchanges creates an option for companies with fewer than 50 employees that are currently offering insurance. These small companies will be able to drop coverage but still have the assurance that their employees could find insurance.

Local health insurance brokers say they have been counseling their clients to wait until California’s nascent health insurance exchange publishes a list of health plans that will be available for purchase in 2014.

Exchanges are another part of health reform, often called Obamacare, that take effect on the first day of 2014. California has been one of the most aggressive states in the nation at setting up its exchange, which was approved by the federal government in January.

Starting in October, Californians will be able to contact the exchange and shop for health plans organized in four tiers: bronze, silver, gold and platinum. The four tiers correspond to increasing levels of benefits, each covering a larger portion of an insured individual or family’s total medical expenses.

The health law requires plans to cover a certain basket of benefits, including preventive services at no additional cost.

The California exchange has not yet published a list of health plans that will be available, but more information should be released this summer.

Craig Gussin, a local insurance agent and president of the San Diego Association of Health Underwriters, added that other questions also remain, leaving him and his colleagues frustrated that they cannot yet paint a fully accurate picture of future costs and benefits for their clients.

“It’s like going to watch a baseball game at Petco Park and having no idea what the rules are until the umpire makes them up at 7:05 when the game starts,” Gussin said.

All insurance plans include networks that agree to see a given insurance company’s patients at specified rates. Consumers who see doctors outside that network generally pay higher prices.

Hammett predicted that, because the government largely sets the types of benefits insurance plans must offer, and also sets parameters on the prices that can be charged, doctor networks participating in the plans offered on the exchange are likely to have a limited choice of doctors.

“An ultra-limited doctor network that resembles Medicaid may not be what a business owner is looking for,” Hammett said.

In addition, employer contributions to health insurance are tax deductible for employees. Gussin noted that employers who decide to simply give their employees a monthly allowance, added directly to their paycheck, in lieu of directly subsidizing coverage, would force their employees to pay more income tax. However, many employees could also be eligible for a partial subsidy of their insurance costs by purchasing coverage on the exchange.

There is also, noted Neil Crosby, director of sales for Warner Pacific Insurance Services, a competitive advantage in offering benefits that will likely push back against initial desires to save money by shifting employees onto exchanges.

“I think a lot of employers will toy with the idea of dropping coverage. In the end, I think they will realize what a benefit it provides for their employees and, if they want to keep those employees happy and healthy, I think they will continue providing benefits,” Crosby said.